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Pipeline operator TC PipeLines L.P. (TCP - Analyst Report) is scheduled to report its first-quarter 2013 results on Wednesday, Apr 24, before the opening bell.

In the fourth quarter of 2012, TC PipeLines delivered a negative 11.11% earnings surprise, due to lower transportation rates in the Great Lakes along with low income from other pipeline systems. In fact, TC PipeLines delivered negative earnings surprises in all the last 4 quarters, with an average miss of 7.08%. Let’s see how things are shaping up prior to this announcement.

Factors to Consider This Quarter

There are reasonable concerns about the long-term availability of natural gas transported by Northern Border Pipeline Company due to the growing maturity of the pipeline’s catchment area – the Western Canadian Sedimentary Basin. This limits the pipeline’s long-term growth prospects.

Additionally, the contracting scene for Great Lakes Gas Transmission appears bleak. While almost 80% of its contracted capacity expired on Nov 1, 2012, we do not expect this to get replenished under long-term contracts anytime soon due to several structural challenges (indecision associated with the future tolling structure or competitive landscape). This has led to heightened uncertainty regarding the pipeline system’s future.

Moreover, we also remain concerned about lower spending on transportation fuels by businesses and customers. This has an adverse impact on TC PipeLines’ cash flows and distributions. Additionally, we remain wary of cost overruns on expansion projects (which lead to lower returns).

Earnings Whispers?

Our proven model does not conclusively show that TC PipeLines is likely to beat the Zacks Consensus Estimate in the first quarter. That is because a stock needs to have both a positive earnings Expected Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) for this to happen. But this is not the case here as elaborated below.

Negative Zacks ESP: This is because the Most Accurate estimate stands at 64 cents while the Zacks Consensus Estimate is higher at 65 cents. This results in a difference of -1.54%.

Zacks Rank #3 (Hold): TC PipeLines’ Zacks Rank #3, however, increases the predictive power of ESP. That said we also need to have a positive ESP to be confident of an earnings surprise call.

We caution against stocks with Zacks Rank #4 and 5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some MLPs in the energy sector you might want to consider on the basis of our model. These have the right combination of elements to post an earnings beat this quarter:

Delek Logistics Partners L.P. (DKL - Snapshot Report) has an earnings ESP of +10.53% and a Zacks Rank #2 (Buy).

NuStar Energy L.P. (NS - Analyst Report) has an earnings ESP of +6.67% and a Zacks Rank #2 (Buy).

Spectra Energy Partners L.P. (SEP - Snapshot Report) has an earnings ESP of +6.98% and a Zacks Rank #2 (Buy).

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